Home builders

Homebuilders halt construction as confidence plunges to two-year low

Topline

Homebuilder confidence plunged to a two-year low in July as high inflation and supply chain constraints prompted many builders to halt home construction, the report reported on Monday. ‘National Association of Home Builders, marking the latest sign that the housing market is set to see a rapid recovery. after the pandemic-era home-buying spree.

Highlights

Builder confidence in the new home market recorded its seventh consecutive monthly decline in July, falling 12 points to 55 for its second largest one-month decline in history, according to the NAHB Housing Market Index/ Wells Fargo published Monday.

The report also showed that homebuilders’ expectations for current and future sales fell sharply, pushing confidence to its lowest level since May 2020.

In a statement explaining the battered sentiment, NAHB President Jerry Konter said production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction, because the cost of land, construction and financing exceeds the market value of a house in some cases.

Also hurting confidence, rising interest rates have driven up the cost of new mortgages by hundreds of dollars each month, on average, “significantly slowing sales and buyer traffic,” NAHB said.

In emailed comments, Pantheon Macro’s chief economist Ian Shepherdson said confidence had “fallen further”, noting that Federal Reserve Chairman Jerome Powell hinted last month. to the “complicated situation” in the property market, saying potential buyers “need a bit of a reset”. as mortgage rates normalize to higher levels after remaining historically low during the pandemic.

“It’s a slump,” says Shepherdson, noting that house prices should soon start to fall and warning: “Very soon anyone who has bought a house in the last few months will be sitting on a loss.”

Surprising fact

According to the NAHB, the only decline in confidence worse than this month occurred in April 2020, as the rapid spread of Covid cases forced historic Fed action to support the economy.

crucial quote

“The Fed has signaled it may raise interest rates further to combat stubbornly high inflation, which could hurt consumer confidence, and falling stock prices mean fewer potential buyers can allow a down payment,” said Daryl Fairweather, chief economist at real estate brokerage Redfin. in a statement last week.

Key Context

Demand to buy homes soared during the pandemic as interest rates crashed and an influx of Americans began working from home. However, the Fed’s rate hikes quickly caused a reversal. Mortgages grew from $2.3 trillion in 2019 to over $4 trillion in 2020 and 2021, but demand has since fallen to the lowest level in more than two decades.

Further reading

‘Housing party is over’: Supply rises for first time since 2019 as mortgage rates rise and sellers cut prices (Forbes)

Mortgage giant cuts thousands of jobs and warns of ‘accelerating’ downturn as housing market crashes sharply (Forbes)